Bondholders push back on Mercuria Energy’s DIP proposal for Aegean

NEW YORK (LPC) - Bondholders of Greek fuel services provider Aegean Marine Petroleum Network Inc are objecting to a US$532m debtor-in-possession (DIP) loan from Mercuria Energy Group that could give the Swiss commodities trader a controlling stake in the company and push their recoveries into cents on the dollar territory, three sources familiar with the situation said.

As part of a court-approved restructuring agreement, Mercuria will provide the DIP financing to bankrupt Aegean in exchange for a “stalking horse bid,” which allows it to bid first on the distressed company’s assets.

The move is part of Mercuria’s strategy to finance cash-strapped firms that are strategically linked to its core businesses of energy and commodities trading.

Aegean Marine is a Greek company focusing on petroleum refining and trading and is one of the largest independent fuel suppliers in the world.

Although Mercuria’s restructuring proposal values Aegean at US$681m, the ad hoc committee of convertible bondholders is opposing the plan as it would cut their recoveries on US$267m of outstanding bonds to 31% of face value, or US$82.7m.

Mercuria’s DIP financing was approved on November 9. It includes a US$72m delayed-draw term loan and also gives Aegean access to a US$160m revolving credit facility (RCF) and a US$300m global RCF, according to court filings.

Aegean filed for Chapter 11 bankruptcy protection in New York on November 6. Judge Stuart Bernstein, who is presiding over the bankruptcy case filed in the US Bankruptcy Court of the Southern District of New York, subsequently approved Mercuria’s proposed DIP financing and an auction plan for the company’s assets, as long as there is an open and transparent bidding process for control of Aegean Marine.

The ad hoc bondholder group is working on a competing restructuring plan that would boost their recoveries, two of the sources said.

The final DIP hearing will take place on December 5.

LIQUIDITY STRAIN

Aegean signed a US$750m three-year secured borrowing base loan in December 2017, but lenders were reluctant to allow the company to draw down on the credit facility due to concerns over its inventory levels and accounts receivables.

The financing comprised a US$200m A facility and a US$550m letter of credit, guarantee and overdraft B facility, according to LPC data.

ABN Amro was the lead bookrunner and mandated lead arranger on the transaction. BNP Paribas, KBC Bank, Natixis, MUFG, HSH Nordbank, Belfius Bank, Credit Suisse and Mashreqbank are also lenders.

As part of a financial audit overhaul in May 2018, Aegean named three directors – Tyler Baron, Raymond Bartoszek and Donald Moore – to its board of directors in a bid to turn around its liquidity woes and also terminated a consulting agreement with Aegean’s founder Dimitris Melissanidis.

The new board members started talks with the bank group to allow drawing on the credit facility but pushback from the lenders left illiquid Aegean hamstrung.

“The company had no additional liquidity to procure supplies and had little fuel to sell to the markets,” one of the sources said.

CHECKERED HISTORY

The new board members ordered an audit of Aegean’s financials dating back to 2010. In November, Aegean confirmed it had written-off US$200m in accounts receivable, and a further US$100m may have been fraudulently siphoned away.

The audit committee, along with Aegean’s board members, believed a contract with Oil Tank Engineering and Consulting, a company incorporated in March 2010 in the Marshall Islands, was signed in 2010 to build an oil terminal in the United Arab Emirate of Fujairah but the contract was used to misappropriate funds through over-priced contracts, Aegean said in a press release on November 2.

The audit also unveiled payment of oil receivables that were never delivered. Costs to construct the Fujairah oil terminal facility had also increased by more than US$100m to approximately US$222m, according to internal documents obtained by LPC.

Aegean said in June it had reported the findings of the audit committee to the US Securities and Exchange Commission and the Department of Justice. Several Aegean employees deemed complicit in the fraud had been dismissed.

Armed with the audit’s preliminary findings, Aegean’s new board members approached commodities traders, such as Trafigura and Freepoint, hoping to find a trade financing partner to fund Aegean after commercial banks would not, two of the sources said.

Mercuria stepped in and offered Aegean US$30m of incremental liquidity, along with US$250m and US$750m in revolving credit facilities through January 31, 2019, Aegean said on August 16.

The transaction gave the Swiss commodities trader a 30% stake in Aegean, and effectively set the stage for a takeover.

Aegean Marine was founded in Piraeus, Greece in 1995 by Greek businessman Dimitris Melissanidis. The company went public on the New York Stock Exchange in 2006.